Master D.C. Circuit rejects a commercial impracticability claim arising from the Suez Canal closure; increased cost alone was insufficient to excuse performance or justify extra compensation. with this comprehensive case brief.
Transatlantic Financing Corp. v. United States is a leading case on the modern doctrine of impracticability, illustrating how courts distinguish between true commercial impracticability and mere increases in cost. Decided by the D.C. Circuit in 1966, the case arose from the 1956 Suez Crisis, which closed the Suez Canal and forced an ocean carrier to take a far longer route around the Cape of Good Hope to deliver U.S. government cargo to Iran. The carrier sought additional compensation, contending that the closure fundamentally altered the bargain and rendered the original performance impracticable.
The court’s opinion is frequently studied because it articulates a structured approach to impracticability: an unexpected contingency; the contingency’s nonoccurrence as a basic assumption of the contract; and performance rendered commercially impracticable rather than merely more expensive. By applying those elements to deny relief, Transatlantic demonstrates how risk allocation, foreseeability, and the availability of reasonable alternative means of performance shape the boundaries of impracticability.
363 F.2d 312 (D.C. Cir. 1966)
Transatlantic Financing Corporation contracted with the United States to transport a full cargo of wheat from a U.S. Gulf port to Bandar Shapur, Iran. The contract did not specify the route, but in ordinary circumstances such a voyage would go through the Suez Canal. After the ship departed, hostilities in the Middle East culminated in the 1956 Suez Crisis, and the Canal was closed. At Gibraltar, the carrier learned of the closure, notified the government, and then proceeded to Iran via the Cape of Good Hope. The alternative route significantly increased the voyage’s length, time, and expense. Transatlantic completed delivery and the government paid the contract price. The carrier then sued for additional compensation (approximately $43,972), claiming that the Suez closure rendered performance impracticable or otherwise outside the scope of the original bargain, and that the government was unjustly enriched by the extra services required to complete delivery. The district court rejected the claim, and Transatlantic appealed.
Does the closure of the Suez Canal, which makes performance more expensive by requiring a longer route, render the contract commercially impracticable so as to excuse performance or entitle the performing party to additional compensation beyond the contract price?
A party’s duty to perform may be discharged (or adjusted) for impracticability when, after the contract is made, an unforeseen contingency occurs, the nonoccurrence of which was a basic assumption of the contract, and the contingency makes performance commercially impracticable. Mere increases in expense, even if substantial, do not suffice unless they are extreme and beyond the risks allocated by the contract or the surrounding circumstances. Courts consider: (1) the occurrence of an unexpected contingency; (2) whether the risk of that contingency was allocated by the contract or the circumstances; and (3) whether the contingency renders performance commercially impracticable as opposed to simply more costly. See principles reflected in Restatement and U.C.C. § 2-615 (impracticability).
No. The Suez Canal closure did not render the contract commercially impracticable, and the increased costs incurred by traveling around the Cape of Good Hope did not entitle Transatlantic to additional compensation. Judgment for the United States was affirmed.
The court began by distinguishing true impracticability from mere difficulty or increased expense. It emphasized that a cost increase alone does not excuse performance unless the increase is so extreme that it fundamentally alters the nature of the expected performance. Here, an alternate route (the Cape of Good Hope) existed and was actually used, and the voyage, though longer and more expensive, remained feasible and within the general scope of the undertaking: to deliver wheat from the U.S. Gulf to Iran. Turning to the elements of impracticability, the court analyzed three factors. First, while the Suez closure was a contingency, its foreseeability was at least appreciable given then-current Middle Eastern tensions and the known possibility that the Canal could be closed. Foreseeability does not alone defeat an impracticability claim, but it informs whether the nonoccurrence of the event was a basic assumption of the contract. Second, the contract did not expressly allocate the routing risk to the government, and it did not include a Suez Canal clause that would shift or reprice the risk if the Canal closed. In the absence of explicit allocation, and given industry practice that ships can take alternative routes, the court concluded the risk lay with the carrier. The obligation was to deliver the cargo to the named destination, not to take any particular route. Third, the court found the additional cost—approximately a low double-digit percentage increase—did not rise to the level of commercial impracticability. The longer route did not transform the nature of the performance; it merely increased Transatlantic’s expense. Under the U.C.C. and general contract principles, such a modest increase relative to the overall venture does not excuse performance or justify quasi-contractual recovery. The court also rejected the argument that government communications during the voyage effected a modification: instructing the vessel to proceed around the Cape was not an assent to pay more; it was consistent with insisting on contractual performance. Nor did the successful completion of delivery convert the original bargain into a new one warranting additional compensation. Because the risk of the Canal’s closure was not shifted to the government, an alternative route permitted performance, and the added expense was not extreme, there was neither an excuse for nonperformance nor a basis for restitution beyond the contract price.
Transatlantic is a cornerstone case for the modern impracticability doctrine. It supplies a widely cited three-part framework and underscores the high threshold for commercial impracticability: a mere increase in cost—even if significant—is usually insufficient. The case also teaches parties to allocate risks expressly (for example, via a Suez clause or force majeure provision). For law students, it clarifies how foreseeability, risk allocation, and the availability of alternative means of performance interact, and it sets the stage for later Suez Canal cases that likewise deny impracticability when performance remains feasible, albeit more expensive.
The court recognizes modern impracticability as distinct from strict impossibility: performance need not be literally impossible to excuse; it can be excused when an unforeseen event makes performance commercially impracticable. However, the threshold is high—mere increases in difficulty or cost generally do not suffice unless they are extreme and alter the essential nature of the performance.
Foreseeability was relevant but not dispositive. The court noted that geopolitical tensions made a Suez closure foreseeable, which suggested that the nonoccurrence of such a closure was not a basic assumption of the contract. This, in turn, weighed against excusing performance. Still, the key point was that an alternative route existed and the increased cost was not extraordinary.
No. The government’s communications were interpreted as insisting on performance, not as agreeing to pay more. There was no mutual assent to modify price terms, and no consideration or other indicia of a binding modification. The court rejected any implied promise to compensate beyond the contract rate.
The court did not set a bright-line percentage, but it made clear that a relatively modest increase (roughly a low double-digit percentage) was insufficient. The inquiry is contextual: courts assess whether the increase is so extreme that it fundamentally alters the nature of the performance and lies outside the risks the performing party reasonably assumed.
Transatlantic underscores the importance of explicit risk allocation. Parties can include route clauses (e.g., a Suez clause), force majeure, hardship, or price-adjustment provisions to address contingencies like canal closures. Absent such terms, courts will often allocate the risk to the performing party if alternative means of performance exist and the cost increase is not extreme.
Transatlantic Financing Corp. v. United States crystallizes the modern approach to commercial impracticability by demanding more than increased expense to excuse or reprice performance. The Suez Canal closure, though disruptive, did not fundamentally alter the carrier’s obligation to deliver wheat to Iran, and the presence of a feasible alternate route—despite added time and cost—kept the performance within the scope of the original bargain.
For practitioners and students, the case serves as a cautionary tale: when risk is foreseeable and not expressly allocated, courts are reluctant to relieve a party of its obligations or grant extra compensation. Careful drafting and explicit risk allocation are essential to manage geopolitical and logistical uncertainties that can affect performance costs.